Alibaba's (BABA) Q1 Results Support Ratings - Moody's

Moody's Investors Service says that Alibaba Group Holding Limited's (NYSE: BABA) results for the year ended 31 March 2016 (FY2016) support the company's A1 issuer and senior unsecured debt ratings, and the stable outlook on the ratings.

"Alibaba's consistently strong revenue growth is in line with Moody's expectations, and reflects the company's success in raising monetization rates for its mobile channel, and the growing transaction volumes in its retail marketplace in China," says Lina Choi, a Moody's Vice President and Senior Credit Officer.

In the last quarter of FY2016 (the three months ended 31 March 2016), Alibaba's retail gross merchandize value (GMV) in China rose 24% year-on-year to RMB742 billion, with mobile comprising 73% of total GMV.

Its revenue grew 33% year-on-year to RMB101 billion during the same period.

Moody's expects that the company's mobile revenue will continue to rise over the next 12-18 months, as consumers increasingly access its marketplaces through mobile devices.

Moody's points out that the company's mobile monetization rate during the last quarter of FY2016—at 2.42%—was close to its monetization rates for personal computers of 2.62%.

The mobile monetization rate stood at around 1.79% for FY2015, and the gradual convergence of PC and mobile monetization rates proves Alibaba's ability to enrich services offered to buyers on mobile devices, and integrate both platforms to improve customer engagement and experience.

Alibaba's adjusted EBITDA margin during the three months between January and March 2016 fell to around 41% from 44% for the same period the year before, driven primarily by investments made in its strategic initiatives including Koubei, Alibaba's main O2O portal.

Looking ahead, strategic investments such as Youku Tudou (unrated)—an online video operation—Lazada (unrated)—a South Asia e-commerce platform—and other investments in areas such as music and sports will dilute Alibaba's overall adjusted EBITDA margins, because these initiatives are loss making.

Nevertheless, Moody's believes that Alibaba's gradually rising monetization rate on its core e-Commerce platform will help maintain its profitability profile and keep its adjusted EBITDA margin at around 35%-40% over the next 12-18 months.

Moody's expects that the company will maintain a solid revenue and EBITDA growth trajectory over the next 12-18 months.

Accordingly, Moody's says Alibaba will likely register an adjusted debt/EBITDA of around 1.5x-1.6x over the next 12-18 months, and maintain a consistent net cash position. Such a financial profile falls within the parameters of its A1 ratings.

"Because Alibaba's cash position remains strong, the company can support its business expansion," adds Choi, who is also the Lead Analyst for Alibaba.

Moody's also expects that Alibaba will further expand the reach of its ecosystem, enhance its mobile capabilities, and enrich its applications and products.

The company's strong cash holdings—including short term investments—of RMB112 billion at 31 March 2016 and strong operating cash flows are adequate to cover its investments and payment obligations over the next 12-18 months.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Founded in 1999 by Jack Ma and a group of partners, Alibaba Group Holding Limited is a Chinese e-commerce company that provides consumer-to-consumer, business-to-consumer, and business-to-business sales services on its various marketplaces. It also provides online escrow payment services and data-centric cloud computing services.

Alibaba owns a 48% stake in China Smart Logistics Network, a nationwide delivery and fulfillment service provider.

Alibaba completed its initial public offering on the New York Stock Exchange on 19 September 2014.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

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